EDITORIAL – ADV TS EMSILE SC
WHAT ABOUT CGT ON THE SALE OF SILVER COINS?
Indeed, what about capital gains tax (‘CGT’) on the sale of silver coins (which – one hears said these days – being undervalued, have even more upside potential than gold coins).
The first point to note is that the definition of ‘asset’ in paragraph 1 of the Eighth Schedule to the Income Tax Act, 58 of 1962, as amended, (‘the Eighth Schedule’ and ‘the Act’ respectively) includes:
‘(a) property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency, but including any coin made mainly from gold or platinum; and
(b) a right or interest of whatever nature to or in such property.’
A silver bullion coin that is legal tender, ie a coin issued by a specific country or government that has a specific currency value on the face of the coin, is clearly not an asset. This is because it is currency, and because it is not made from gold or platinum. Examples include the American Silver Eagle, a legal tender coin with a face value of one US dollar, and the Canadian Silver Maple, a legal tender coin with a face value of five Canadian dollars. One hears that a Silver Krugerrand, also legal tender, is being minted in 2017.
On the other hand, ‘rounds’ or ‘medallions’, so-called because they are not released by a particular country or government, and do not have any legal tender value, are not ‘currency’ and therefore do constitute ‘assets’, being movable corporeal property.
Thus the sale of a silver ‘round’ or ‘medallion’ clearly does constitutes the ‘disposal’ of an ‘asset’ for ‘proceeds’, but the sale of a silver legal tender coin does not because it is currency and is not make from gold or platinum.
Paragraph 53(1) of the Eighth Schedule provides that:
‘A natural person or a special trust must disregard a capital gain or capital loss determined in respect of the disposal of a personal-use asset as contemplated in subparagraph (2).’
Paragraph 53(2) provides that:
‘A personal-use asset is an asset of a natural person or a special trust that is used mainly for purposes other than the carrying on of a trade.’ (Emphasis supplied)
Thus where an individual acquires and holds a silver ‘round’ or ‘medallion’ mainly for purposes other than the carrying on of a trade, it is a personal-use asset and, therefore, excluded from the ambit of CGT.
Significantly, paragraph 53(3)(a), which provides that personal-use assets do not include a coin made mainly from gold or platinum of which the market value is mainly attributable to the material from which it is minted or cast, does not apply to a silver ‘round’ or ‘medallion’.
It can safely be said, then, that the sale of silver coins that are legal tender is not subject to CGT, nor is the sale of silver ‘rounds’ or ‘medallions’ that are assets of a natural person or a special trust if they are used mainly for purposes other than the carrying on of a trade.
The term ‘trade’ is defined in section 1 of the Act to include:
‘every profession, trade, business, calling, occupation or venture, including the letting of any property and the use of and the grant of permission to use any patent as defined in the Patents Act or any design as defined in the Designs Act or any trade mark as defined n the Trade Marks Act or any copyright as defined in the Copyright Act or any other property which is of a similar nature’.
Silver coins that are legal tender are never subject to CGT when sold by whomsoever, and individuals and special trusts that acquire and holds silver rounds or medallions as collectors, or as a store of value, and not for trade, will not attract CGT when they sell such rounds or medallions as personal-use assets in terms of paragraph 53 of the Eighth Schedule.
*Disclaimer: The views expressed herein are those of the author, and do not necessarily represent the view of Silver-sphere Trading.